Scott Barnett & Associates Blog
International Franchising Insights

March 6, 2024
I have been working in international licensing and franchising for a long time.
Just recently, I closed three deals for a client in Indonesia, China and Thailand. I currently have deals pending in Peru, the Middle East and an Area Development Agreement for Southeast Asia.

I thought it might be interesting to talk about how to approach things like this and the manner in which I do international business generally.

Though there are many things to consider, there are three highly important mitigating factors as it pertains to international franchising by U.S. companies. In no particular order, they are:

Is the franchisor/licensor prepared to responsibly engage?

Is there a general acceptance of specific western or American style cuisines in the prospective country or area?

Within the country or area, are there safeguards and is there transparency in terms of standard business practices?

There are, of course, a myriad of other concerns and conditions that will influence this but I have found these to be the most critical.
Is the Franchisor/Licensor Prepared to Responsibly Engage?
The key word is "prepared." A franchisor must have the financial wherewithal to support their overseas partner. What that means is that the 3 unit "designer pizza" chain that everybody in the community loves is probably not ready to develop a training team, devote a person to quarterly compliance visits and give the kind of support and marketing assistance that a franchisee several thousand miles away will need. There has to be an infrastructure in place. In this regard, size matters.
Is There a General Acceptance of Specific Western or American Style Cuisines in the Prospective Country or Area?
There are numerous popular concepts and food styles in the U.S. that people in many countries are eager to try. There are just as many that have absolutely no place in certain foreign countries. For example, a BBQ concept that has a signature pulled pork might do well in the Philippines but would fail spectacularly in a largely Islamic country like Malaysia.

Restauranteurs have been trying to open Mexican concepts in Hong Kong for decades with limited or no success. There is a reason for that. Don't get me wrong - there are a few sprinkled around but contrast that with other countries where there is one on every corner.
Within the Country or Area, Are There Safeguards and Is There Transparency in Terms of Standard Business Practices?
If a restaurant is licensing in Australia or Japan, there is a set of standards and a level of transparency that allows a licensor to have confidence that their rights and privileges are protected to a large degree. That is not always true in other countries and it means you have to be careful.
Who Are You Making the Agreement With?
This is the key question.

Gordon Miles, my partner at Bubba Gump, was arguably the best "deal guy" I have ever known. He once said to me, "What's in that franchise agreement is not nearly as important as who we make that agreement with."

He was absolutely right.

The only time I was ever taken down by a franchisee was in the very beginning of my days doing franchises. Our initial franchisee in Manila was an accomplished fraudster who, among other misdeeds, sold 300% of her restaurant to outside investors. Fortunately, we escaped with only a $50,000 loss and we were able to seamlessly move in another group.

Again, the key word is qualified. There are a number of people in any foreign country who believe they are capable of operating a restaurant under a known brand. Many are but more aren't. The due diligence on potential players is possibly the most critical thing you can do in this regard.
Ultimately, how you decide to do international is dependent on many more factors as well. Geopolitics, quality of operation, financial strength, the competitive set and much more all play a role. I have done a fair amount of international deals, for myself as well as for clients, and it can be a minefield.

But there is a gold seam in this that can be quite compelling. You just have to know the territory.
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